Watson’s Weekly 23-11-2024

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

It’s been another eventful week as war escalated, Trump’s appointments created a stir and the UK government continued to cop some flack…

• IN WAR NEWS – Russia targeted Ukraine energy sites in a major missile and drone attack, Putin announced that he’d restrict exports of enriched uranium to the US (which is serious because US nuclear power plant operators rely on Russia for over 25% of their supplies of the material) and the G20 watered down support for Ukraine as it upped the pressure for peace talks.
• IN THE US – Trump made some appointments including a new heads for the FCC, US health, energy secretary and the newly-formed Department of Government Efficiency. Fears of the impact of his presidency are rattling those who could be in his crosshairs – like Vietnam (for having a big trade surplus with the US) and individual companies (like Hasbro) that use a lot of non-US suppliers. US companies are stockpiling supplies from China to get ahead of the tariffs – and while fears of global shipping activity falling off a cliff because of Trump look overdone you could also argue that concerns about his policies’ immediate impact are also too pessimistic because there are a lot of factors that could take the edge off them (e.g. a stronger dollar making imports “cheaper”, deregulation could cut prices and lower taxes, that his belligerent dialogue could lead to better deals for the US etc).
• IN HONG KONG – 45 pro-democracy activists were sentenced for anywhere up to ten years in prison for conspiracy to commit subversion over an opposition primary election in 2020. Hong Kong’s assimilation into mainland China continues…
• IN INDIA – charges are being brought by the US Department of Justice and the SEC against the founder of India’s powerful Adani Group conglomerate, Gautam Adani. He has been accused of involvement in a $265m bribery scheme. This is bound to put some strain on the US-India relationship given the closeness of PM Modi and Adani.
• IN THE UK – inflation rose to 2.3% in October, up from 1.7% in September and above market expectations of 2.2%. It’s expected that this will delay/slow down interest rate cuts. Starmer managed to have a meeting with Xi Jinping at the G20 summit and they agreed to more meetings in the future but the new Business Secretary voiced concerns about being “exposed” in the even of a global trade war – although if push came to shove, he said that he’d be inclined to side with the Europeans. Business leaders continued to react negatively to recent government policies and the Budget as UK farmers protested about tax changes and retailers warned of the hit, ultimately affecting jobs – something that the governor of the Bank of England agreed with. Restructuring specialists Begbies Traynor said that it expects more companies to be pushed to the brink because of the Budget changes. Labour market data continues to be dodgy, making the Bank of England’s job of deciding interest rates more difficult, and public sector pay rises have fuelled an unexpected rise in government borrowing. On the plus side, the latest GfK findings show that UK consumer confidence is recovering from the pre-Budget jitters although reports from S&P and Goldman Sachs say that this consumer confidence hit will be a drag on wage growth.

IN MARKETS NEWS…

• Trading assets at US banks have now breached the $1tn level for the first time since the financial crisis thanks to a particularly strong Q3. Interestingly, assets are now at their highest level since Q1 of 2008, according to BankRegData.
• Vanguard announced that it will let retail shareholders vote by proxy on management issues affecting companies that they hold. This is an interesting development because it means that those who thought that Vanguard put too much emphasis on ESG and not enough on profits will be able to get their say.
• The UK’s Competition and Markets Authority (CMA) said that it’s going to change the way that it looks at mergers and put emphasis on behavioural rather than structural remedies. This came shortly after PM Starmer told them to prioritise growth, investment and innovation as he promised to cut needless bureaucracy.

IN COMMODITIES NEWS…

• BP approved a $7bn gas project in Indonesia in a bet on growing demand for gas in the region. Production is expected to start in 2028 and it will be BP’s first ever carbon capture, utilisation and storage project – so maybe it hasn’t abandoned its climate initiatives altogether!
• Although gold initially had its worst weekly fall in over three years, the analysts at Goldman Sachs reckon it could get to $3,000 an ounce under Trump thanks to investors seeking a safe haven from likely trade tensions, the heightening of political risks and his inflationary policies.
• Meanwhile, the CEO of Albemarle, the world’s biggest lithium producer, has called it and said that it will be impossible to build a commercially viable supply chain in North America and Europe that can completely cut out Chinese suppliers. Will governments step in to help or will this be another industry that is lost to the Chinese?

IN CRYPTO NEWS…

• Trump Media and Technology Group is in advanced talks to buy Bakkt, a crypto trading venue that is currently owned by Intercontinental Exchange. Bakkt’s share price shot up by 162% on the news!
• Bitcoin got closer to $100,000 this week! Since Donny T won the election, its value has risen by almost 40% as the one-crypto-sceptic has transformed into a fully-fledged crypto-bro!
• Current SEC chief – and arch-crypto sceptic – announced that he would quit at noon on January 20th, when Trump officially becomes president. Gensler was appointed by Biden and locked horns with the crypto industry suing the likes of Coinbase, Kraken and Binance during his time in office.

IN BATTERY NEWS…

• It’s curtains for Northvolt as it filed for Chapter 11 bankruptcy protection in the US. It will operate as normal for the time being.

IN CAR NEWS…

• Ford decided to cut 4,000 jobs in Europe in response to a slowdown in EV sales, becoming the latest company to take similar actions.
• Carmakers were getting hopeful that the government would be more flexible to help carmakers hit EV targets, but this proved to be just a dream as the government decided to stick to its guns.
• Meanwhile, Auto Trader, the SMMT and ChargeUK – with the blessing of the Department for Transport – are joining forces to put together a campaign to counter all the negativity surrounding buying an EV.

IN SELF-DRIVING NEWS…

• Tesla’s share price boomed on news that Trump is looking at easing regulations for self-driving vehicles. This could help bring forward the commercialisation of self-driving vehicles – which will be pretty sweet for Musk!

IN FINANCING NEWS…

• Moody’s came out with an estimate of what it reckoned the car finance mis-selling scandal could cost lenders in terms of compensation – £30bn. For scale, the PPI scandal resulted in a compensation bill of £50bn!
• Santander UK has set aside £295m to put towards compensation for its part in the scandal, if it comes to that.
• In the end, it looks like the FCA is planning to allow lenders more time to respond to car finance complaints but a final decision on this will be made on 19th December.

IN RETAIL NEWS…

• IN LUXURY – after the slowdown of Chinese consumer momentum it looks like the big luxury names need to be looking at growing in the US market as, at the moment, luxury spend hovers at around 0.4% of GDP while Europe and Japan spend about 0.6% and South Korea about 0.8%. This would imply that there’s lots of upside – and progress may be accelerated by a strong dollar making goods for Americans comparatively “cheaper”. The LVMH-owned make-up retailer Sephora announced plans for 20 stores in the UK (versus the six it currently has) as its re-entry into the UK market has gone well (it gave up in the UK back in 2005). Meanwhile, the new boss of the troubled Mulberry has announced a turnaround plan of sorts. It’s hardly original (streamline the business and cutting prices) but it’s too early to tell whether this is going to work.

IN ONLINE RETAIL…

• Shein announced that it was aiming to do an IPO on the London Stock Exchange in Q1 of 2025, some welcome good news for the embattled exchange.
• Temu owner PDD posted its slowest revenue growth in over two years thanks to tougher competition and worries about the potential negative impact of Trump’s tariff regime.
• Tensions rose at Boohoo as Frasers Group, which holds a 27% stake in the online apparel retailer called for co-founder Mahmud Kamani’s full resignation because they say that he is holding back efforts to turn the company’s fortunes around.

IN TRADITIONAL RETAILER NEWS…

• JD Sports had a profit warning thanks to disappointing US and UK sales, but it’s unclear yet if this is JD Sports-specific or whether it’s a wider problem.
• HMV said it would suspend store openings, saying that recent Budget changes have made it too risky to invest.
• Lidl also complained about the extra costs that the Budget changes will incur, but it added that it saw a big uptick in sales over the past year and swung into profit after posting a loss in the previous year.
• Over in the US, Walmart saw robust sales over the most recent quarter thanks to consumers buying groceries, home goods and toys – enough to prompt the company to hike its sales and profit forecasts for the year.

IN LEISURE NEWS…

• Merlin Entertainments (which owns Legoland, Alton Towers and Thorpe Park) and Mojang Studios, the creator of Minecraft signed an agreement to invest £85m in two Minecraft attractions in the UK and US sometime between 2026 and 2027.
• BrewDog had to shut down its two flagship Mumbai bars, leaving them with just two bars in India after they made a real fanfare about entering the market in 2021. Foreign rivals have also experienced difficulty in the market because of “excessive” regulatory action and the confusing rules across India’s states and territories.

IN TECH NEWS…

• The US Department of Justice is talking about forcing Google to sell its Chrome internet browser due to it having an “illegal monopoly” in search. Google has until April to present remedy proposals to avoid such dramatic action.
• Apple has proposed building a factory in Indonesia in a bid to reverse the ban of iPhone 16 sales. The ban came into force when it was deemed by the government that the current involvement of local resources just wasn’t enough.
• Chinese smartphone makers – including Realme, Honor, Oppo and Xiaomi- are preparing to expand their market share in Europe as there is a lot of room for upside! Meanwhile, big Chinese tech companies in the US are poaching staff from rival groups to catch up with AI. This sounds like a loophole that Trump needs to plug if he’s serious about not letting the Chinese get hold of the most advanced tech.
• Nvidia’s sales boomed once more following a bit of a hiccup in August. Its fortunes have become such a big deal now that the mood of the whole market seems to shift in synch with how things are going for the company!
• Palo Alto’s share price dropped by 5% despite it publishing Q1 results that came in above forecasts and raising its full-year revenue guidance. Maybe investors are just locking in profits from a share prices that has increased by 33% year to date.
• Sage’s share price boomed by a chunky 20% after it announced a big increase in annual profits and a £400m share buyback. It did particularly well in North America, its fastest growing market.
• ProRata.ai signed up some UK publishers including DMG Media to its platform that pays content creators on a per usage basis. It gets money from subscriptions and allocates 50% of the revenues to its licensing partners.
• IN SOCIAL MEDIA NEWS…
• Large numbers of users – both individuals and corporates – have been leaving X since Trump won as it being increasingly seen to be an unfettered right-wing mouthpiece for Musk (and Trump). Bluesky seems to be benefiting the most from users migrating to its platform, which is more like Twitter of old.
• Reddit continues to do well and swung into profit in October. Its share price has quadrupled since its March flotation. Will the party continue??

IN MEDIA NEWS…

• Associated Press announced that it would cut 8% of its staff via layoffs and buyouts as it is the latest outlet to suffer from digitisation and the evolution of the way people consume media.
• Comcast is on the verge of spinning off its cable TV networks (which include CNBC, MSNBC, E! and USA Network) to let it focus on its entertainment and sports assets that feed into the “new” (ish) world of streaming. Is this another nail in the coffin for cable??

IN RESIDENTIAL PROPERTY NEWS…

• UK mortgages have been creeping up following news that inflation has again risen above the Bank of England’s 2% target.
• UK house prices cooled for the second month in a row, according to Rightmove. Having said that, it reckons that the market will bounce back in 2025.
• Research from Savills predicts that rents will rise by almost 20% over the next five years, something that is mainly due to an ongoing lack of supply of rental properties vs rental demand.
• Crest Nicholson warned of lower profits but there was some good news in that the “new” CEO hasn’t found any more skeletons in the cupboard. Maybe this is a sign of its fortunes bottoming out?

IN COMMERCIAL PROPERTY NEWS…

• British Land managed to become profitable over the summer as it seems that things are finally turning around for the retail sector after a very rough few years. British Land’s retail parks are now performing well and its rents and property valuations are now on the up.

• US budget carrier Spirit Airlines filed for Chapter 11 bankruptcy this week, becoming the biggest US passenger airline to go bankrupt in over ten years! It was denied a chance to consolidate with rival JetBlue Airways last year leaving it having to compete against the giants.
• Tokyo Metro won the contract to run London’s Elizabeth Line from May 2025. Much joy, given how brilliant Tokyo’s trains run – but it’ll be interesting to see if they can wield their magic over here!
• Unilever decided to suspend the sale of its ice cream business after buyers just didn’t fancy it. It will now look to spin the business off into an IPO.

My favourite “AND FINALLY” video this week was the one about Russell Crow telling us what was really going on in one of his most iconic scenes!